The US Goldman Sachs Group recently predicted that due to weak economic growth, the ECB and the Bank of England will cut interest rates faster than previously anticipated.

Goldman Sachs chief economist Jan Hatzius (Jan Hatzius) wrote in the report that the bank currently expects the ECB to cut interest rates continuously starting in December this year, rather than once every other meeting. Khachus's team also lowered the ECB's terminal interest rate forecast by 0.25 percentage points to 2%.

As for the Bank of England, Goldman Sachs expects it to cut interest rates continuously starting in November, with a larger drop than previously anticipated. Although Hacchus kept the terminal interest rate forecast unchanged at 3%, this is already below the market's expectation of 3.25%.

“Recent inflation data is a bit stubborn, which seems to have strengthened the determination of hawkish officials to move more slowly,” Hacchus wrote, “but as inflation falls further and growth continues to be weak, we now expect continuous interest rate cuts starting in December.”

Hachius said they lowered growth expectations in the Eurozone due to weak performance in the manufacturing sector (Germany in particular). According to the report released at the beginning of the month, the final Eurozone manufacturing PMI for August was 45.8, slightly higher than the preliminary statistics of 45.6, but far below the 50 boom and bust watershed.

Eurozone Manufacturing PMI & Industrial Output YoY

Analysts believe that inflation in Europe and the UK is more stubborn than expected, mainly due to strong wage growth. This has dampened expectations of aggressive easing this year, and officials have taken a more cautious stance. But that narrative seems to be changing as evidence of economic weakness continues to emerge.

Data from earlier this week showed that wage growth in the UK fell to its lowest level in two years, the economy stagnated for the second month in a row, and the rapid recovery from the recession was weakening. In Europe, economic growth is faltering, manufacturing activity is still sluggish, and household demand is insufficient to fill this gap.

It is worth mentioning that Goldman Sachs's forecast was issued a few hours before the ECB announced its resolution. Khachus expects the ECB to cut deposit interest rates by 25 basis points to 3.5% during the day, which is in line with economists' overall expectations.

The Bank of England's most recent meeting will be held on September 19. Economists expect that after cutting interest rates by 25 basis points last month, policymakers will keep the key interest rate unchanged at 5% at this month's meeting.

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